Business context and reporting period
Finance of America Companies Inc. (FOA) is a diversified mortgage and specialty-lending platform, with Mortgage Originations, Reverse Originations, Commercial Originations, Lender Services and Portfolio Management segments. The company became publicly traded on April 1, 2021, following its business combination. Its fiscal year ended December 31, 2021.
Comparisons require care: the filing reports a Successor period (April 1–December 31, 2021) and a Predecessor period (January 1–March 31, 2021). Acquisition accounting changed the basis of presentation, so these periods are not directly comparable. Any combined 2021 figures below are arithmetic sums of those reported periods, not GAAP full-year results.
Key financial metrics
| Metric | 2021 reported periods | 2020 Predecessor |
|---|---|---|
| Revenue | $1.229 billion Successor; $507.7 million Predecessor Q1; combined arithmetic sum $1.736 billion | $1.800 billion |
| Net income (loss) | $(1.301) billion Successor; $124.3 million Predecessor Q1; combined arithmetic sum $(1.177) billion | $497.9 million |
| Net income (loss) before taxes | $(1.322) billion Successor; $125.5 million Predecessor Q1; combined arithmetic sum $(1.196) billion | $500.3 million |
| Adjusted Net Income (non-GAAP) | $201.4 million Successor; $106.8 million Predecessor Q1 | $428.9 million |
| Adjusted EBITDA (non-GAAP) | $301.6 million Successor; $154.2 million Predecessor Q1 | $596.6 million |
| Operating cash flow | $(214.6) million Successor; $118.0 million Predecessor Q1 | $(686.1) million |
| Cash and liquidity | $141.2 million cash; $322.4 million restricted cash at year-end. Management cited approximately $3.3 billion of liquidity sources, including $3.2 billion of undrawn warehouse lines. | $233.1 million cash; $306.3 million restricted cash |
| Debt and equity | $3.7 billion total indebtedness, including $3.3 billion senior secured and $353.3 million senior notes; separately, $16.6 billion of HMBS-related obligations and nonrecourse debt recorded on balance sheet. Total equity: $1.083 billion. | Total equity: $628.0 million |
FOA recorded a $1.381 billion non-cash goodwill and intangible-asset impairment in 2021, including impairment of all goodwill. The filing says this impairment did not reduce tangible book value. It reported $1.06 adjusted diluted EPS for the Successor period; adjusted measures are non-GAAP and should not be treated as cash available to shareholders.
Material changes versus prior period
- Combined 2021 revenue of approximately $1.736 billion was below 2020’s $1.800 billion. Mortgage Originations revenue declined as margins compressed: annual mortgage origination margin was 2.86% versus 3.88% in 2020, and gain-on-sale margins on sold loans were 2.9% versus 4.5%.
- Reverse Originations and Commercial Originations expanded: 2021 reverse-loan originations were $4.3 billion versus $2.7 billion in 2020; commercial originations were $1.8 billion versus $855.3 million. Lender Services revenue increased 60.1%, supported by higher title closings and underwriting volumes.
- Mortgage servicing rights fair value rose to $427.9 million from $180.7 million; associated serviced UPB increased to $39.3 billion from $22.3 billion. The MSR portfolio remains sensitive to interest rates and prepayment assumptions.
- Assets were $21.8 billion and liabilities $20.7 billion at year-end, versus $19.6 billion and $18.8 billion, respectively, at year-end 2020. Presentation is affected by acquisition accounting and fair-value measurement.
Outlook, risks and unusual items
- No quantified company earnings or revenue guidance is provided. Management cautioned that higher interest rates and Federal Reserve tightening could reduce refinancing and purchase-loan demand, affect securitization pricing, and increase variable-rate funding costs.
- Interest-rate and funding exposure is material: 93% of outstanding debt, after derivatives, had variable interest rates at year-end; 93% of financing arrangements were LIBOR-indexed. The company noted LIBOR’s planned discontinuation and uncertainty around replacement rates.
- The company had covenant issues during 2021: FAM received waivers for FNMA net-worth requirements, and FAM and FACo obtained waivers or amendments for profitability covenant breaches at year-end following impairment and fair-value impacts. Management said it was in compliance with all other financial covenants at December 31.
- The business depends on warehouse funding, loan-sale and securitization markets, and agency approvals. California represented 43% of 2021 mortgage, reverse and commercial originations by UPB, creating geographic concentration risk. COVID-19-related forbearance covered approximately 0.25% of serviced loans by units and 0.26% by UPB at year-end.
- Management concluded disclosure controls were ineffective at year-end. The filing identifies material weaknesses involving complex financial instruments and accounting for tax effects of goodwill impairment; remediation is ongoing. The auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal control effectiveness.
- Four coordinated California PAGA employment lawsuits were in discovery; the company said it could not reasonably estimate a loss range. The filing also describes continuing regulatory examinations and repurchase/indemnification exposure, without identifying other matters as probable or reasonably possible with estimable losses at year-end.
- Subsequent events included a February 2022 MSR sale covering $8.38 billion UPB at $98.1 million fair value, two reverse-mortgage securitizations, and changes to financing facilities. These occurred after the reporting date.
Important facts for investors to verify
- Reconcile the separate Successor and Predecessor periods, and confirm any combined-year calculations against the audited statements and non-GAAP reconciliations.
- Review the impairment analysis, remaining intangible-asset value, and sensitivity of reported results to Level 3 fair-value assumptions.
- Check covenant waivers and amendments, committed versus uncommitted borrowing capacity, facility maturities, and available liquidity under stress.
- Assess variable-rate and LIBOR exposure, hedge effectiveness, and the potential effect of higher rates on originations, MSRs and securitization execution.
- Track remediation of internal-control material weaknesses, PAGA and regulatory proceedings, and any developments in loan repurchase or indemnification claims.
- Consider the UP-C structure, controlling shareholders, potential unit exchanges and dilution, and Tax Receivable Agreement payments equal to 85% of specified realized tax benefits.